Brexit and energy: what future for UK-EU energy cooperation?
By Antony Froggatt, senior research fellow in the Energy, Environment and Resources Department (EER), Chatham House
The UK’s decision to leave the European Union (EU) after 43 years of membership will fundamentally reshape the UK’s relations with the EU27, and negotiations are likely to be lengthy and complex. However, energy policy is one area where it may be politically easier to find common ground.
Given the amount of existing energy trade between the UK and the EU, particularly for electricity, and further plans for decarbonisation and more interconnection across the European continent, it would be unrealistic to remove the UK completely from the EU energy market. If successful, a strong UK-EU27 energy cooperation could pave the way for a new partnership model for the EU, the UK and their neighbours.
A competitive European internal energy market
European energy cooperation over the last decades has helped create a more competitive, dynamic and efficient energy market, enhance the geopolitical security of European countries and provided global leadership in responding to growing climate threats. As part of the European internal energy market (IEM), buyers and sellers in any one country can access markets in other countries, increasing competitiveness.
Gas and electricity interconnectors – physical pipes and cables that transfer energy across borders – between the UK and the continent play an essential role in energy trade, and plans to treble their capacity in the next 10 years are expected to lower wholesale electricity prices in the UK. These interconnectors provide an important and cost effective way of integrating intermittent renewables and other resources such as wind energy into electricity systems.
However, being fully integrated into the IEM will almost certainly require compliance with current and future EU market rules as well as with some EU environmental legislation. Once outside of the EU, there is a risk that the UK Government may become more of a rule taker in this area, with other actors such as the UK’s energy regulator Ofgem and GB transmission system operators such as National Grid losing influence over EU regulation and policy-making.
A key issue for Brexit negotiations will be the UK’s future relations with Ireland. In terms of energy, there is already a special arrangement between the Republic of Ireland and Northern Ireland which takes the form of a Single Electricity Market (SEM). Maintaining it will require European approval as it is currently underpinned by EU legislation and subject to the jurisdiction of the European Court of Justice, which the UK government has made it clear the UK would no longer be subject to. Ensuring the survival of SEM should be a priority for both governments as any alternative would probably result in an expensive duplication of infrastructure.
EU funding for UK energy
The EU is a significant source of funding for UK energy infrastructure and climate mitigation, especially for project identification, development, financing and R&D. While the UK Government has committed to maintaining current levels of funding through to 2020, a longer-term commitment is needed.
One option is for the UK to continue participating in European energy research and development programmes post-Brexit, although this would require the UK to contribute to EU funds post-Brexit, albeit in a smaller manner. This approach would reduce uncertainty and enable collaboration on existing and planned energy projects in the UK and with member states. National funds, mixing public and private sector spending, may also be necessary.
The UK’s and EU member states’ nuclear sectors are intertwined at the core and are governed by the 1957 Euratom Treaty, which established the European Atomic Energy Community. Leaving this arrangement – i.e. “Brexatom” – will have a significant impact on the functioning of the UK’s nuclear industry particularly in terms of nuclear material safeguards, the supply and movement of nuclear material and research and development.
Adjusting these relationships will be extremely complex and may not be finalised within the current two-year negotiating timetable. The UK government and regulatory agencies should start training new safeguards inspectors immediately and aim to sign new uranium supply treaties upon the UK’s departure. The latter is particularly important as there is currently no default arrangement – such as the World Trade Organisation – to fall back on. Government will also need to take difficult decisions on fusion research and development funding.
EU Emissions Trading System
The UK established the world’s first greenhouse gas emissions trading system and was a driver of the EU Emissions Trading System (ETS). However, without a willingness to abide by the jurisdiction of the European Court of Justice and in the absence of a new joint UK-EU compliance mechanism, the UK will need to leave the ETS and probably before the end of its current phase (2013-20). Once outside of the ETS, the UK would need to establish its own trading scheme or introduce a carbon tax, either of which would need long term political commitments to be effective.
Strengthening Energy Cooperation across the continent: an Enlarged European Energy Union
The EU has a number of energy relationships with its neighbours and the European Commission has in the past recognised the need for a more structured approach. The best way to achieve greater energy policy cohesion across the continent, while also enabling neighbouring states participating in the IEM such the UK to contribute and influence policy, would be to establish a robust pan-European energy partnership.
This new multilateral framework would offer a platform for aligning EU energy policies with those of third countries including the UK, Norway and Switzerland, but also for pushing forward common initiatives. It would help the EU meet its goal of strengthening energy cooperation in Europe by broadening the energy market beyond member states and the EEA. It would also help ensure that the UK and other European countries speak with one voice on energy and climate issues on the global stage.
Experience suggests that the EU27 would be more receptive to working within an existing framework or a multilateral approach, rather than through a bi-lateral approach like that between the EU and Switzerland, which is often less flexible and has been subject to delays and political hurdles.
Future UK-EU27 energy cooperation
No one should be under any illusion that forging a positive and constructive energy partnership will be easy, particularly given the number of issues to be settled. But robust pan-European energy cooperation is ultimately in the interests of both the UK and the EU27. Conveying the mutual benefits and opportunities to consumers and policy-makers throughout the negotiations will be essential to ensure energy is considered a special case, and existing energy cooperation maintained.
This blog first appeared on the UKERC wedsite, and is based on a Chatham House, Exeter University and UKERC co-authored report which can be found at here.